Gloria Macapagal-Arroyo

President of the Republic of the Philippines 2001 - 2010

Electricity and Water

Perspective

The provision of an adequate, steady and reliable water and power supply to the Filipino people is indispensable to the uplift of their well-being. The Government has over time responded energetically to this need with the resources at its command.

Both water and power problems are being solved at two levels, first at the level of cities and other urban centers (including provincial capitals) and, second, at the level of local governments, barangays and smaller communities. The first level is well supplied with water and power but suffers from high cost power. . The second level suffers from shortages or in a few cases even absence of these vital utilities.

The Government has therefore been directing its corrective efforts at these problems, achieving tremendous success in providing water and power to the country's communities and making notable progress in transforming the power sector to a globally competitive industry.

I. Increasing the Water Supply

A. The National Picture

1. Water Districts

The success of Government action in the provision of water supply to communities can be seen in the Table below.

By 2009, a total of 800 local water districts had been formed in the country, of which 199, or a full 25 percent of total, were formed in the last nine years. These water districts covered exactly 921 cities and towns, of which 248, or 27 percent of total, were covered in the same period. Most importantly, more than 20 million rural folk benefited from the program, of whom 10 million, or 50 percent of total, received their water supply in the last nine years.

Government action was not limited to the formation of water districts. Specific water supply projects (including pumping stations and aqueducts) inside and outside the water districts were also formed. We now have, as of 2009, a total of 1,869 completed projects, of which 560, or 30 percent of total, were completed, again,. in the last nine years. In addition we have 162 projects being completed this year 2010.

2. Financial Assistance

Aside from expanding the serviced areas, the Government extended financial assistance to the WDs for the rehabilitation and improvement of their respective water systems. The Table below gives the numbers.

By 2009, a total of P34.7.billion had been allocated to water districts nationwide. Of this total, the amount of P23.8 billion had been availed of by the water districts. Of the total allocation, P18.7 billion, or 54 percent of total, was allocated in the nine-year period 2000-2009. Similarly, of the total availments, the amount of P14.9 billion, or 63 percent of total, was availed of in 2000-2009.

Ground-breaking a P57-million water supply improvement project in Meycauayan City, Bulacan. Source: LWUA

In addition to financial assistance the Government introduced low-cost financing schemes for the development of water supply, including reduced interest rates, longer repayment period, and proper mixing of loans and grants in the assistance package.

Beneficiaries now have access to safe drinking water 24 hours a day with no more need to fetch from distant locations. In consequence of this water supply expansion program, households now enjoy improved health and sanitation conditions at significantly lower cost. The incidence of water-borne diseases has gone down from 20 victims a year in 1997 to an average of four in the decade of 2000-2009. The cost of water has also gone down to P7.0 per cu.m., a fraction of the cost when water had to be purchased from water peddlers.

B. Special Programs

1. Patubig ni PGMA

As a working arm of the Government, the Metropolitan Waterworks and Sewerage System (MWSS), in a program dubbed Patubig ni PGMA, provided potable water to waterless communities through its two concessionaires: Manila Water Company for the east service area and Maynilad Water Services for the west service area. From 2004 when it started, this program has serviced a total of 211,942 households in 216 areas. This translates into 1.48 million people benefiting from this program in the last five years..

2. President's Priority Program on Water (P3W)

Yet another program aimed at the same objective was the President's Priority Program on Water (P3W). Implementing this program, the Government completed numerous water supply projects in waterless municipalities throughout the country during 2004-2009. As of 2009, its accomplishments stood as follows:

A total of 873 thousand households, or about 5.3 million people, in the country now have access to water, of whom 244 thousand, or 1.5 million people, acquired access in 2004-2009. This is equal to 39 percent of the households who acquired access in all the years prior to 2004.

II. Intensifying Barangay Electrification

A. The Record as of 2010

For years many communities in our country had lived in darkness, bereft of any power supply. The Government did not allow this situation to persist. The Government is proud of its accomplishments in this field. In its totality as of February 2010, the energization program covered 41,778 barangays nationwide. This represents a 99.52 percent energization level for the whole country.

Particularly noteworthy is the electrification of the Aeta Resettlement area in Mawacat, Floridablanca, Pampanga. Supplied with electricity to power their household lights and home appliances, the Aetas now enjoy much improved living conditions.

The Government entered into a covenant in 2004 with 119 electric cooperatives, 24 LGU/private-investor owned providers, and MERALCO, for the specific purpose of extending the coverage of the rural electrification program to all barangays To this day, all signatories continue to cooperate to bring the barangay electrification program to a successful conclusion.

2. The Record of 2001-2010

In the last nine years 2001-2010, the Government extended power supply to almost 8,000 barangays, more than it ever did in any comparable period in the past. The graph below tells the story.

Energizing the barangays is different from energizing the households. The latter requires connecting the households to the power supply. The 99.52 percent energization level of the barangays translates to the highest number of consumer connections ever reached. As of February 2010, 3.16 million consumers had been connected to the electric power supply..

III. Expanding the Rural Electrification Program

The reform of the power sector continues. Since 2003, the Government, with the participation of the private sector, has been pushing through the electrification not just of barangays but of sitios, which are small communities of people, and the connection not just of almost all but of all households to power supply. The reform effort is outlined in the Expanded Rural Electrification Program Law. The program aims to achieve 100% barangay, including sitios, electrification by 2008 and 90% household electrification by 2017. The program encourages distribution utilities (DUs) to serve all areas in their franchise coverage under a "missionary" scheme where DUs provide service to financially non-viable communities as they provide service to viable ones, so long as the economic viability of their over-all operations is not compromised.

There are implementation problems, however. Some DUs found it hard to accomplish the 100% electrification target without undermining their total viability. To address this problem, the Government allowed the opening of the remaining unelectrified barangays to qualified third parties. As a result, many qualified third parties (QTP) joined in the electrification of remote and unviable areas.

The Government is prepared to meet any other problem that may arise in the days ahead.

Renewable Energy

The quest for clean and green energy remains to be an overriding concern in the global scheme of things. Countries all over the world are taking part in the green revolution in order to address pressing environmental issues, particularly climate change, global warming, and carbon footprints.

In the Philippines, efforts to tap the country's indigenous energy sources have taken a major turn in recent years, with the Arroyo administration at the forefront. Through careful, well-contemplated steps, the government is getting closer to realizing its vision of a sustainable energy system. Diversifying energy sources through the combination of fossil fuels and renewable energy (RE) sources is seen as a major step in the right direction.

Due to the Philippines' vast RE potential, harnessing its geothermal, hydropower, wind, solar, ocean, and biomass resources will greatly affect the country's primary energy mix. The energy mix is comprised of the shares of various energy sources that are either produced or imported to supply the day-to-day energy needs for both power and non-power.

Among the country's indigenous energy resources, the main contributors include geothermal with an average share of 23%, biomass with 14.5%, natural gas with 6.6%, and hydro with 6%.

Biomass, solar, and wind are seen to be among the major sources of energy for the next decade, accounting for more than a third of the country's total energy demand. Also, their contribution in the non-power sector will comprise a significant portion of total demand for RE in the next ten years.

In order to help make the Philippines a leader in the global geothermal energy development, the government plans to increase the targeted installed capacity from 1,972 to 3,000 MW by 2030. With 964 MW, Visayas now has the highest installed capacity among the major islands.

From 2004 to 2008, RE resources accounted for an average of 43.5% in the primary energy mix. Their contribution is expected to further improve in the coming years because of the passage of the Renewable Energy Act of 2008.

Renewable Energy Act of 2008

In December of 2008, President Arroyo signed into law Republic Act 9513, also known as The Renewable Energy Act of 2008. The law provides for both fiscal and non-fiscal incentives to promote and accelerate the development and utilization of the country's renewable energy sources.

The law is meant to encourage the private sector to invest in the Philippines' renewable energy resources through a Renewable Portfolio Standard (RPS) that mandates energy suppliers to source a minimum percentage of their annual energy demand from RE-based sources. Also, a feed-in tariff mechanism sets a fixed price for power sourced from RE for 12 years.

Another feature of the law is the Green Energy Option that enables end-users to choose RE as their source of energy.

Fiscal incentives for RE developers include a seven-year income tax holiday, duty-free importation of equipment, special realty tax rate on equipment and machinery, net operating loss carry over, reduction of corporate income tax to 10% of net income, accelerated depreciation, zero percent value added tax (VAT) rate for the sale of power, and cash incentive for missionary electrification, among others.

Other incentives are a ten-year duty-free importation and VAT exemption on all types of agricultural inputs, equipment, and machinery for farmers engaged in the plantation of biomass resources. A tax rebate for purchase of RE equipment for residential, community, and industrial use will also be implemented.

In heeding the clamor to pass this legislation, especially from environmental groups, such as Green Peace, the World Wildlife Fund for Nature (WWF-Philippines), and the Renewable Energy Coalition, the Arroyo administration displayed its sincere commitment in safeguarding the environment from the effects of prolonged use of fossil fuels, as well as ensuring greater energy security for the nation.

From the signing of this landmark legislation, the government has since inked 87 contracts with 18 companies for the development of biomass, geothermal, solar, hydropower, wind, and ocean energy resources. Altogether, these projects shall generate a total of 4,402 megawatt electrical (MWe) of power, 1,257 MWe of which constitutes additional power capacity. Investments totaling approximately $2.2 billion are also expected to come in because of these projects.

Biofuels Act of 2006

The implementation of Republic Act 9367 or the Biofuels Act of 2006, signed in January of 2007, strengthened the government's efforts to reduce dependence on imported oil and harness more environment-friendly alternatives to fossil fuel. Through the mandated use of biofuels, the Act aims to explore the country's agricultural resources as potential feedstocks for biofuels.

Biofuels refer to both biodiesel and bioethanol. Biodiesel is derived from plant oils that are processed to remove the glycerine and then mixed with methyl alcohol. In the Philippines, biodiesel is referred to coco-biodiesel because coconut oil is currently being used. Bioethanol, on the other hand, is a light alcohol produced by fermenting carbohydrates in vegetable matter. It is distinguished from ethanol that comes from non-plant sources, such as petroleum. In the Philippines, the primary source of bioethanol is sugarcane.

The mandatory 1% biodiesel blend was sold in all gasoline stations in May of 2007 and was increased to 2% in February 2009. The country now enjoys an accelerated use of E10 or the 10% bioethanol blend that is supplied in most gasoline retailers. From January to September of 2009, actual ethanol sales reached 14 million liters with an equivalent foreign exchange savings of $5.9 million from fuel displacement.

As of the first quarter of 2009, the Department of Energy (DOE) endorsed a total of 48 biofuel investments to the Board of Investments (BOI) and the Securities and Exchange Commission (SEC). The energy department has also issued accreditation to 13 biofuel producers.

The use of alternative energy is now being made more widespread with the installation of a favorable environmental policy. The government, through the Philippine Energy Plan 2010-2030, aims to increase the biodiesel blend from 2 percent to as much as 20 percent by the end of the planning period. This step would lead to the increase of fuel displacement of 102 million liters in 2009 to 1,885 million liters in 2030. In the case of bioethanol, the target is to increase fuel displacement from 169 million liters to 1,340 million liters by increasing the bioethanol blend from 5 percent to 20 percent by 2030.

In order to implement these measures, certain factors will be considered such as the availability of supply, competition with other fuels, rational pricing, and the availability of appropriate infrastructures.

The biofuels sector, with the close participation of the National Biofuels Board, has also sought the help of research institutions to make the plans and programs a reality. In order to put these measures into action, tests on the durability of vehicles for higher biodiesel blends and viability studies for other sources are being conducted.

Energy Self-sufficiency

Based on the primary energy mix, the country's energy self-sufficiency, or the country's ability to derive energy from its own sources, increased by 4.4 percentage points from 53.5% in 2004 to 58% in 2008. Of the total supply of more than 39,000 thousand tons of oil equivalent or KTOE of energy supply in 2004, consumption of local energy sources stood at around 21,000 KTOE. In 2008, however, local energy reached about 23,000 KTOE out of the total supply of more than 39,000 KTOE.

In terms of the fuel source used for power generation, the Philippines' energy self-sufficiency figure steadily increased from 57.9% in 2004, 64.5% in 2007 to 67.1% in 2008. The country's power generation mix grew by 8.7% from almost 56,000 gigawatt-hours (GWH) in 2007 to nearly 70,000 GWH in 2008.

While the main bulk of the country's power requirements is still largely supplied by natural gas and coal, the percentage of coal in the power generation mix has gone down to 25.8% in 2008 from a level of 28.9% in 2004. This can be attributed to the higher share of RE sources over the years. Moreover, oil-based power plants reported a reduction in generation to a level of 4,868 GWH in 2008 from a high of 8,504 GWH in 2004.

Back in 2001, energy self-sufficiency was a mere 39%. By the end of 2009, the Philippines is now 66% self-sufficient, with natural gas contributing 33%, hydro 16%, and geothermal 17%.

Natural gas, the cleanest among the hydrocarbon fuels, has become the country's major fuel used for power generation. Its production in the Malampaya gas field has reached 137,072 million standard cubic feet in 2008 from only 87,557 million in 2004.

In a study conducted in 2003 by the WWF and the University of the Philippines National Engineering Center, it showed that the Philippines can save over $2.9 billion from avoided importation of oil by increasing the country's renewable energy share in the power generation mix from 0.16% to 41%. Another analysis done by the Renewable Energy Coalition revealed renewable energy sources can actually reduce the nation's oil imports by half, thereby enabling more money to be spent on social and infrastructure programs.

Apart from the economic benefits, however, is the invaluable contribution of the nation's RE sector to the protection of the planet from the devastating effects of climate change today and for generations to come.

The Philippine Energy Plan

As a response to the current energy problems the country faces today, the Philippine Energy Plan (PEP) 2009-2030 is set to be released by the Department of Energy to highlight the plans and programs of the energy sector. The PEP will primarily deal with the future of energy development, a crucial factor in the country's growth. The main goal of the PEP is to ensure that smart and responsible decisions regarding the country's energy choices are made in order to give Filipinos a better quality of life.

PEP 2009-2030 was crafted in order to address the energy problems at present and also to bring about change in the country's energy future. PEP is based on three main policy thrusts: to ensure energy security, to effectively pursue the implementation of reforms for the energy sector, and to implement social mobilization and cross-sector monitoring mechanisms.

In order to ensure energy security, the Plan aims to accelerate the exploration and development of resources such as oil, coal and gas, intensify development and utilization of alternative energy resources and technologies, and enhance the efficiency and conservation of energy. Attaining nationwide electrification, installing long-term reliable power supply, improving transmission and distribution systems, securing vital energy infrastructure and facilities, and maintaining a competitive energy investment climate are also goals of the PEP.

Certain steps must also be taken in order to pursue effective implementation of energy sector reforms. These include monitoring the implementation of existing energy laws, promoting an efficient, competitive, transparent and reliable energy sector, and advocating the passage of new and necessary laws.

Finally, implementing social mobilization and cross-sector monitoring mechanisms will not be an easy feat if not for certain measures that the PEP has decided to focus on. These are: expanding reach through information, education and communication, establishing a cross-sector monitoring mechanism in cooperation with other national government agencies and other organizations, and promoting good governance.

The Electric Power Industry Reform Act of 2001

The Electric Power Industry Reform Act of 2001 (EPIRA) mandates a radical restructuring of the power industry to provide the nation with reliable power at an affordable price by dismantling monopolies and encouraging private sector investments. It is a drastic shift from a power sector that is dominated by the state-owned National Power Corporation (NPC) to one that is more dynamic, competitive, and efficient.

But to better understand the law, we need to look back at the power industry that gave birth to it.

The Power Industry before EPIRA

After EDSA 1, the government saw that the industry was fraught with problems of inefficiencies and subsidies. In order to ensure an adequate power supply and save the government from subsidizing the NPC, they turned to deregulation as a solution.

As a first step towards deregulating the power industry, Executive Order No. 215 was issued in 1987 to open up the generation sector to private investors. Previously, the NPC had a monopoly on power generation and transmission.

Then came the build-operate-transfer (BOT) scheme, which was introduced through Republic Act No. 6957 in 1990, and Republic Act No. 7718 in 1994.

Although these efforts and the Emergency Power Crisis Act (EPCA) of 1993 put a stop to the widespread daily brownouts that the country was experiencing during the early 1990's, they were unable to address the power industry's long-term problems, specifically the high costs of power, cross-subsidies, and NPC's ballooning debt.

It was clear that the government had to make a bigger stride. It needed to restructure the industry and provide the private sector with investment opportunities aside from the BOT scheme. Thus, after seven years of debates, Congress passed the EPIRA.

What is EPIRA?

On June 8, 2001, President Gloria Macapagal-Arroyo signed into law Republic Act 9136, or the Electric Power Industry Reform Act of 2001. It is designed to put an end to monopolies that breed inefficiency, encourage the participation of more industry players, and trigger competition that will afford consumers better rates and services.

Two major reforms are embodied in the EPIRA: the restructuring of the power industry, and the privatization of the NPC.

Restructuring calls for the unbundling of the industry's four sectors namely generation, transmission, distribution, and supply. Whereas generation and supply will be deregulated, distribution and transmission will be regulated by the Energy Regulatory Commission (ERC), an independent quasi-judicial regulatory body created pursuant to this law to replace the Energy Regulatory Board (ERB).

The privatization of the debt-ridden NPC involves selling-off to private investors the power firm's generation and transmission assets (that is, power plants and transmission facilities), real estate properties and other disposable assets, as well as its existing power supply contracts with independent power producers (IPPs). The newly created Power Sector Assets and Liabilities Management (PSALM) Corporation, a government owned and controlled corporation, will assume ownership and oversee the sale of all of NPC's assets. The main objective of PSALM is to liquidate all NPC financial obligations and stranded contract costs.

The National Transmission Company (TRANSCO), a corporation wholly owned by PSALM, was also created pursuant to EPIRA to acquire all transmission assets of the NPC and assume the authority of the NPC for the planning, construction, operation, and maintenance of its high voltage transmission facilities, grid interconnections, and ancillary services. These responsibilities now rest with the National Grid Corporation of the Philippines (NGCP), the private corporation that won in the bidding for a fifty-year franchise.

These two major reforms to the power industry sought to encourage greater competition and attract more private-sector investments. Competition between and among generating companies will make prices market-driven and more competitive so consumers can enjoy lower power rates and a more efficient delivery of services.

On top of its benefits to consumers, NPC's privatization will allow the government to shift the burden of spending for the construction, operation, and maintenance of expensive power generating plants to the private sector.

Other provisions of the EPIRA include the creation of the Wholesale Power Spot Market (WESM), a market-driven trading platform for power designed to promote further competition in the sale and purchase of power. The law also sought to remove cross-subsidies and limit the market shares of power firms to encourage true competition and prevent monopolistic practices. EPIRA limits the volume of power that a distribution utility can buy from an affiliated company that is engaged in power generation, and also provides that "no company or related group can own, operate or control more than 30 % of the installed capacity of a grid and / or 25 % of the national installed generating capacity."

Pro-poor provisions are also included, as EPIRA provides for a subsidized "lifeline" rate for marginalized or low-income power consumers who cannot afford to pay the full amount. This protects such consumers from higher power costs even when the cross-subsidies on power tariffs are removed. The bill also mandates the NPC to continue its missionary function of providing power to non-viable, far-flung areas even after its privatization.

The Current Power Crisis

The EPIRA is a strong, ambitious legislation that buttresses the government's unwavering commitment to reform the power industry, but it is not without its critics.

Some say that the looming power crisis is evidence that the bill is a failure. However, we should bear in mind that these power shortages are caused by a confluence of factors, both within and beyond the government's control.

President Arroyo on March 12, 2010 issued Proclamation No. 2022 declaring a state of calamity in Mindanao. The proclamation states that "the El Nino phenomenon and the absence of new large generation capacities have aggravated the power supply situation in the Mindanao Grid." Because Mindanao is highly dependent on hydropower, the impact of the prolonged dry spell due to the El Nino weather phenomenon is far more pronounced in the South as their water reservoirs dry up.

Similarly, the absence of new generation capacities cannot be blamed entirely on the EPIRA. The bill provides for bold moves to restructure the power industry but it does not exempt the industry from facing market challenges. Investors cannot be attracted overnight; they spend a long time studying a potential investment. Moreover, many are wary of dipping into the Philippine power sector because of the low return on investments. This is where a low power rate is both a blessing and a curse: the ERC ensures that consumers enjoy lower power costs but this may come at the expense of losing potential investors.

To further stir competition in the power sector, Section 71 of the EPIRA barred the government from investing in additional generation capacity except when no new private investments are coming in and during an officially declared power crisis. However, in light of recent events, there may be a need to refine the existing rules. Because of this, President Arroyo has ordered the Department of Energy (DOE) to review the EPIRA, specifically Section 71, as part of her government's efforts to curb the looming power crisis.

A Solid Foundation

To date, NPC privatization level has reached 81.3 %. PSALM has successfully bid out 24 operating or generating plants and 5 decommissioned plants, and is now working on the remaining pre-conditions necessary for the implementation of open access and retail competition. These pre-conditions are the privatization of the remaining NPC generation assets and the completion of the appointment of IPP Administrators from the current 44 % to the 70 % level as required by the EPIRA.

The Arroyo administration has remained steadfast in instituting reforms in the Philippine power industry to better serve consumers, and took the difficult first step in radically restructuring the industry. Although many challenges lie ahead, President Arroyo has laid out a solid groundwork for future programs that the next administration can build on to ensure that the country will always have a reliable power supply at affordable cost.